NYIA: State Continues to Divert Assessment Funds

The New York Insurance Association (NYIA) is urging the New York state government to stop its practice of diverting assessments levied on New York-domiciled insurers to fund non-insurance programs and operations.

NYIA said this month marks the five years since the association filed a lawsuit to stop the state’s illegal diversion of funds. The litigation is ongoing in State Supreme Court, Albany County, and the court is expected to issue a ruling in the coming months, NYIA said.

This assessment on New York-domiciled insurers is currently called a “206 assessment” and by law is strictly for the state’s insurance regulation expenses. But NYIA said this assessment has been increasingly abused over the years by the state through a dramatic increase in sub-allocations, which are transfers of the assessment money to other state agencies. NYIA said 70 percent of the money collected through this assessment is used for other state agency programs.

“The diversion of funds has been going on for more than two decades, skyrocketing to an astronomical $300 million in 2009 and remaining at that level ever since,” said NYIA President Ellen Melchionni.

Melchionni said NYIA was forced to sue to seek an end to this “egregious budgetary sleight of hand.” She also urged New York Gov. Andrew Cuomo and the legislature to help correct this problem moving forward by eliminating this back door tax on businesses.

“I would say for the last five years since we filed the suit, the illegal assessment totals $1.8 billion,” said Melchionni. “And it goes to a variety of programs to various different agencies. Some of them go to the Department of State, some go to the Department of Corrections, some go to the Department of Health, some go to the Attorney General’s Office.”

Currently, there are more than 75 property/casualty insurers that pay this assessment in New York. Additionally, life and health insurers also pay the assessment, NYIA said.

“In our opinion, it’s a dirty little secret for how they penalize the insurance industry and use the money for other programs that may have merit but they really are not related to insurance,” said Melchionni.

The New York state’s 206 assessment is in addition to the premium tax and all other taxes and fees that are assessed, said Melchionni. “It’s estimated that the current effective tax rate for New York insurance companies is somewhere north of 13 percent, almost 14 percent,” she said. “Most businesses in New York pay anywhere between 7 to 9 percent. So the P/C insurance industry is taxed at a much higher tax rate than most other businesses.”